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The Mandatory Victims Restitution Act of 1996 provides that defendants convicted of crimes committed by “fraud or deceit” must compensate victims for the full amount of their losses. A question that courts often face is whether the government and victim have provided sufficient evidence of their actual losses to obtain restitution under the MVRA. The U.S. Court of Appeals for the Eleventh Circuit, in Atlanta, has provided new guidance in United States v. Stein, No. 14-1521 (11th Cir. Jan. 18, 2017).

After a two-week trial, the defendant was convicted of mail fraud, wire fraud, and securities fraud based on evidence that he fabricated press releases and purchased money orders to inflate the stock price of his client, Signalife, Inc., a publicly traded medical devices manufacturer. The district court sentenced the defendant to 205 months in prison, ordered $5 million in forfeiture, and $13 million in restitution to 2,415 investors of Signalife.

In his appeal to the Eleventh Circuit, the defendant argued the district court erred in calculating actual loss for the purpose of the MVRA. He argued that in estimating actual loss the district court erroneously presumed that all purchasers of Signalife stock during the period of fraud relied on false information advanced by the defendant. He also argued that the district court failed to take into account other market forces that likely contributed to investor losses.

The Eleventh Circuit held the government’s burden was to show investors relied on the defendant’s fraudulent information to satisfy the “but for” causation requirement under the United States Sentencing Guidelines. The Court also held the government must show investor reliance to prove “but for” causation for restitution purposes.

In cases like this, with numerous victims, the government may show reliance by direct evidence or specific circumstantial evidence. In showing specific circumstantial evidence, the government must offer enough evidence from which the district court may reasonably conclude that all of the investors relied on the defendant’s fraudulent information.

In this case, the Court concluded, the record contained no direct, individualized evidence of reliance for each investor, and the circumstantial evidence in the record was too limited to support a finding that the investors relied on the fraudulent information the defendant distributed. Therefore, the Court of Appeals reversed the district court’s $13 million restitution order.

Stein reminds companies of the importance of conducting an internal investigation of any actual losses caused by employee or third party fraud to ensure that a court will order the criminal defendant to pay the victim-company full restitution. Jackson Lewis attorneys are available to conduct such investigations and to advise companies on the Mandatory Victims Restitution Act and their rights in collecting amounts lost to criminal acts.

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